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Conflict of interest
A conflict of interest (COI) occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt their motivation to act appropriately for the other party and cause them to act in their own interests so that they benefit materially, sexually, personally, politically etc. A conflict of interest can only exist if a person or testimony is entrusted with some impartiality; a modicum of trust is necessary to create it. The presence of a conflict of interest is independent from the execution of impropriety. Therefore, a conflict of interest can be discovered and voluntarily defused before any corruption occurs. Conflicts of interest generally (unrelated to the practice of law) More generally, conflicts of interest can be defined as any situation in which an individual or corporation (either private or governmental) is in a position to exploit a professional or official capacity in some way for their personal or corporate benefit. Depending upon the law or rules related to a particular organization, the existence of a conflict of interest may not, in and of itself, be evidence of wrongdoing. In fact, for many professionals, it is virtually impossible to avoid having conflicts of interest from time to time. A conflict of interest can, however, become a legal matter for example when an individual tries (and/or succeeds in) influencing the outcome of a decision, for personal benefit. A director or executive of a corporation will be subject to legal liability if a conflict of interest breaches his Duty of Loyalty. There often is confusion over these two situations. Someone accused of a conflict of interest may deny that a conflict exists because he/she did not act improperly. In fact, a conflict of interest can exist even if there are no improper acts as a result of it. (One way to understand this is to use the term "conflict of roles". A person with two roles—an individual who owns stock and is also a government official, for example—may experience situations where those two roles conflict. The conflict can be mitigated—see below—but it still exists. In and of itself, having two roles is not illegal, but the differing roles will certainly provide an incentive for improper acts in some circumstances.) As an example, in the sphere of business and control, according to the Institute of Internal Auditors: }} Organizational conflict of interest An organizational conflict of interest (OCI) may exist in the same way as described above, in the realm of the private sector providing services to the Government, where a corporation provides two types of services to the Government that have conflicting interest or appear objectionable (i.e.: manufacturing parts and then participating on a selection committee comparing parts manufacturers). Corporations may develop simple or complex systems to mitigate the risk or perceived risk of a conflict of interest. These risks are typically evaluated by a governmental office (for example, in a US Government RFP) to determine whether the risks pose a substantial advantage to the private organization over the competition or will decrease the overall competitiveness in the bidding process. Relationship to medical research The influence of the pharmaceutical industry on medical research has been a major cause for concern. In 2009 a study found that "a number of academic institutions" do not have clear guidelines for relationships between Institutional Review Boards and industry.Policies regarding IRB members' industry relationships often lacking. Types of conflicts of interests The following are the most common forms of conflicts of interests: *Self-dealing, in which an official who controls an organization causes it to enter into a transaction with the official, or with another organization that benefits the official. The official is on both sides of the "deal." *Outside employment, in which the interests of one job contradict another. *Family interests, in which a spouse, child, or other close relative is employed (or applies for employment) or where goods or services are purchased from such a relative or a firm controlled by a relative. For this reason, many employment applications ask if one is related to a current employee. If this is the case, the relative could then recuse from any hiring decisions. Abuse of this type of conflict of interest is called nepotism. *Gifts from friends who also do business with the person receiving the gifts. (Such gifts may include non-tangible things of value such as transportation and lodging.) *Pump and dump, in which a stock broker who owns a security artificially inflates the price by "upgrading" it or spreading rumors, sells the security and adds short position, then "downgrades" the security or spreads negative rumors to push the price down. Other improper acts that are sometimes classified as conflicts of interests are probably better classified elsewhere. Accepting bribes can be classified as corruption; almost everyone in a position of authority, particularly public authority, has the potential for such wrongdoing. Similarly, use of government or corporate property or assets for personal use is fraud, and classifying this as a conflict of interest does not improve the analysis of this problem. Nor should unauthorized distribution of confidential information, in itself, be considered a conflict of interest. For these improper acts, there is no inherent conflict of roles (see above), unless being a (fallible) human being rather than (say) a robot in a position of power or authority is considered to be a conflict. COI is sometimes termed competition of interest rather than "conflict", emphasizing a connotation of natural competition between valid interests rather than violent conflict with its connotation of victimhood and unfair aggression. Nevertheless, denotatively, there is too much overlap between the terms to make any objective differentiation. Examples *Self-policing of any group is also a conflict of interest. If any organization, such as a corporation or government bureaucracy, is asked to eliminate unethical behavior within their own group, it may be in their interest in the short run to eliminate the appearance of unethical behavior, rather than the behavior itself, by keeping any ethical breaches hidden, instead of exposing and correcting them. An exception occurs when the ethical breach is already known by the public. In that case, it could be in the group's interest to end the ethical problem to which the public has knowledge, but keep remaining breaches hidden. *Insurance companies retain claims adjusters to represent their interest in adjusting claims. It is in the best interest of the insurance companies that the very smallest settlement is reached with its claimants. Based on the adjuster's experience and knowledge of the insurance policy it is very easy for the adjuster to convince an unknowing claimant to settle for less than what they may otherwise be entitled which could be a larger settlement. There is always a very good chance of a conflict of interest to exist when one adjuster tries to represent both sides of a financial transaction such as an insurance claim. This problem is exacerbated when the claimant is told, or believes, the insurance company's claims adjuster is fair and impartial enough to satisfy both theirs and the insurance company's interests. These types of conflicts could be easily be avoided by the use of disclosures. *A person working as the equipment purchaser for a company may get a bonus proportionate to the amount he's under budget by year end. However, this becomes an incentive for him to purchase inexpensive, substandard equipment. Therefore, this is counter to the interests of those in his company who must actually use the equipment. *Representatives, in general, have different interests than their constituents. Thus, accepting bribes to vote a certain way is in their interest (assuming they don't get caught), while not in their constituents' interest. These actions are sometimes illegal, but often not, as in the case of a politician accepting large amounts of money for a political campaign, and in return, granting the contributor access to political leaders. This is often cited as an argument for direct democracy (the replacement of representatives' votes with referenda). *Revolving door (politics), government workers or elected officials quitting public service to work for the companies they used to regulate. Regulators are accused of using inside information for their new employers, or compromising laws and regulations in hopes of securing employment in the private sector. Ways to mitigate conflicts of interests Removal The best way to handle conflicts of interests is to avoid them entirely. For example, someone elected to political office might sell all corporate stocks that they own before taking office, and resign from all corporate boards. Or that person could move their corporate stocks to a special trust, which would be authorized to buy and sell without disclosure to the owner. (This is referred to as a "blind trust".) With such a trust, since the politician does not know in which companies they have investments, there should be no temptation to act to their advantage. Disclosure Commonly, politicians and high-ranking government officials are required to disclose financial information - assets such as stock, debts such as loans, and/or corporate positions held, typically annually. To protect privacy (to some extent), financial figures are often disclosed in ranges such as "$100,000 to $500,000" and "over $2,000,000". Certain professionals are required either by rules related to their professional organization, or by statute, to disclose any actual or potential conflicts of interest. In some instances, the failure to provide full disclosure is a crime. Recusal Those with a conflict of interest are expected to recuse themselves from (i.e., abstain from) decisions where such a conflict exists. The imperative for recusal varies depending upon the circumstance and profession, either as common sense ethics, codified ethics, or by statute. For example, if the governing board of a government agency is considering hiring a consulting firm for some task, and one firm being considered has, as a partner, a close relative of one of the board's members, then that board member should not vote on which firm is to be selected. In fact, to minimize any conflict, the board member should not participate in any way in the decision, including discussions. Judges are supposed to recuse themselves from cases when personal conflicts of interest may arise. For example, if a judge has participated in a case previously in some other judicial role he/she is not allowed to try that case. Recusal is also expected when one of the lawyers in a case might be a close personal friend, or when the outcome of the case might affect the judge directly, such as whether a car maker is obliged to recall a model that a judge drives. This is required by law under Continental civil law systems and by the Rome Statute, organic law of the International Criminal Court. Third-party evaluations Consider a situation where the owner of a majority of a publicly held corporation decides to buy out the minority shareholders and take the corporation private. What is a fair price? Obviously it is improper (and, typically, illegal) for the majority owner to simply state a price and then have the (majority-controlled) board of directors approve that price. What is typically done is to hire an independent firm (a third party), well-qualified to evaluate such matters, to calculate a "fair price", which is then voted on by the minority shareholders. Third-party evaluations may also be used as proof that transactions were, in fact, fair ("arm's-length"). For example, a corporation that leases an office building that is owned by the CEO might get an independent evaluation showing what the market rate is for such leases in the locale, to address the conflict of interest that exists between the fiduciary duty of the CEO (to the stockholders, by getting the lowest rent possible) and the personal interest of that CEO (to maximize the income that the CEO gets from owning that office building by getting the highest rent possible). Codes of ethics Generally, codes of ethics forbid conflicts of interests. Often, however, the specifics can be controversial. Should therapists, such as psychiatrists, be allowed to have extra-professional relations with patients, or ex-patients? Should a faculty member be allowed to have an extra-professional relationship with a student, and should that depend on whether the student is in a class of, or being advised by, the faculty member? Codes of ethics help to minimize problems with conflicts of interests because they can spell out the extent to which such conflicts should be avoided, and what the parties should do where such conflicts are permitted by a code of ethics (disclosure, recusal, etc.). Thus, professionals cannot claim that they were unaware that their improper behavior was unethical. As importantly, the threat of disciplinary action (for example, a lawyer being disbarred) helps to minimize unacceptable conflicts or improper acts when a conflict is unavoidable. As codes of ethics cannot cover all situations, some governments have established an office of the ethics commissioner. Ethics commissioner should be appointed by the legislature and should report to the legislature. See also * Conflict resolution * Intra-household bargaining * Professional client sexual relations * Jury nullification * Lobbying * Medical ethics * Money loop * Moral hazard * Role conflicts * Perverse incentive * Professional ethics * Politics * United States Office of Government Ethics References External links * * Further reading * * Category:Conflict Category:Professional ethics